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minesite article on congo

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    Into the Congo

    By: Barry Sergeant

    Posted: 2003/09/22 Mon 11:04 ZE2 | © Mineweb 1997-2003

    LONSHI, DEMOCRATIC REPUBLIC OF THE CONGO - The emergence of a small copper mine in the Congo may yet trigger the long promised rejuvenation of the fabled Central African Copperbelt. Here at the Lonshi border crossing, trucks thunder down a laterite road laden with fresh high grade copper ore from the Lonshi mine, one of just two greenfield mines seen in the copperbelt in the past 33 years.
    A kilometer from the mine, at the border crossing into Zambia, the roaring trucks don’t stop; they are waved through by happy border officials from both countries. Like the 40 ton Volvo dump trucks that work the open pit mine, these contractor trucks run “hot;” with two drivers working consecutive 12 hour shifts, seven days a week. After travelling another 34km, the trucks tip their cargo into the front end of processing facilities at Bwana Mkubwa, a historic copper mine near Ndola in Zambia.

    After processing, Bwana Mkubwa produces pure copper cathode at a world beating cost of about US$0.35/lb, compared to a world spot selling price of around US$0.80/lb. The common denominator linking Lonshi and Bwana Mkubwa is, of course, First Quantum, a company listed primarily in Toronto, and also on the AIM in London. Investors have certainly bought the story; in the past four years, First Quantum’s stock price has risen by more than ten fold (rating it as a “ten bagger”) to current levels above C$8.00 a share.

    Compared to a few years ago, First Quantum is now widely held; the share register includes some of the biggest fund managers known out of Wall Street, Toronto, London, Paris, and Australia. This is in sharp contrast to just a few years ago, when First Quantum had just one material investor; he, not without irony, was a resident of Las Vegas, Nevada, the biggest gambling centre in North America. He made a bundle on his investment when he sold out at around C$3.50 a share.

    Since then the fortunes of First Quantum have galvanised a growing cadre of professional investors. If there is any central secret in this astonishing success story, it may well be found in management’s patient but persistent attempts to develop a strategy to overcome every challenge thrown up by the Central African Copperbelt. The failures here are legendary; in the past few years, both Anglo American and Avmin have taken write offs running collectively into hundreds of millions of dollars.

    Last year, in a move that scandalised Zambia as a whole, Anglo quit its post re-privatisation investment in Zambia Copper Investments (ZCI); earlier this year, Avmin quit Chambishi, primarily a producer of cobalt, a sister metal to copper. Both decisions hinged heavily on lower copper and cobalt prices. It is no secret, however, that even with today’s higher metal prices, few operations on the copperbelt are in the money.

    Why is Bwana Mkubwa the one big exception? For one thing, the mine exhausted the last of its own ore reserves in mid-2002; those “reserves” in any event, were poor quality tailings; the mine had been worked on and off since its discovery in 1902. First Quantum acquired the mine in a straight commercial deal in 1996; its state of dereliction left it outside the mandate of the copper industry privatisation initiated by the Zambian government.

    First Quantum, threatened by the known short life of the operation, also decided to establish Bwana Mkubwa as the biggest producer of sulphuric acid on the copperbelt. That bet continues to pay off. First Quantum also set out to establish new reserves for the processing plant, and “rediscovered” Lonshi in 2000. The Congolese deposit had first been found by Belgian geologists in the 1930s, but had never been worked.

    First Quantum sunk the first drill holes into Lonshi in November 2000, and commissioned the US$25m mine just eight months later – bringing new meaning to “just in time.” This further astonishing management feat only served to foreshadow the next big deal, the First Quantum acquisition of Kansanshi, the next greenfields mine on the copperbelt, and by far the biggest. No less than 17 mining companies, including some of the world’s biggest, were initially handed the complete Kansanshi database by the Zambian government (the deposit was first known in 1899).

    Phelps Dodge, the big US-based copper digger, spent a fortune on a feasibility study and reckoned it would build a mine for around US$550m to produce 120 000 tons of copper a year. It had second thoughts and sold its rights to First Quantum for $25m. The First Quantum definitive feasibility study for the mine coughed out a total capital cost of $163m to produce the same annual tonnage as envisaged by Phelps Dodge.

    “We cut our teeth at Bwana,” says Philip Pascall, chairman and CEO at First Quantum. “We know the copperbelt inside out, and leveraged everything we knew into the integration of Lonshi ore into the processing facilities at Bwana Mkubwa. Kansanshi is the next big step.” The new mine is set to produce its first copper (with a gold credit, highly unusual from copper belt deposits) towards the end of 2004. The net cash cost, after the gold credit, is estimated at “below US$0.40/lb,” placing Kansanshi, like Bwana-Lonshi, among the lowest cost copper miners in the world.

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